Which is the best explanation of how dividends could convey information to investors that could affect the value of a firm? A. Promises to pay dividends limit the ability of managers to accumulate too much cash and to make unwise investments with that cash. B. Investors are skeptical when managers claim that prospects for the firm are bright, but by committing to paying a dividend, managers are adding credibility to their statements about the firm's future. C. Dividends are a more tax efficient way to generate returns for shareholders. D. By paying dividends consistently, investors will come to see dividend payments as less risky than capital gains. Give typing answer with explanation and conclusion

Which is the best explanation of how dividends could convey information to investors that could affect the value of a firm? A. Promises to pay dividends limit the ability of managers to accumulate too much cash and to make unwise investments with that cash. B. Investors are skeptical when managers claim that prospects for the firm are bright, but by committing to paying a dividend, managers are adding credibility to their statements about the firm's future. C. Dividends are a more tax efficient way to generate returns for shareholders. D. By paying dividends consistently, investors will come to see dividend payments as less risky than capital gains. Give typing answer with explanation and conclusion

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter8: Fraud, Internal Controls, And Cash

Section: Chapter Questions

Problem 17MC: What would be a reason a company would want to understate income? A. to help nudge its stock price...

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To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.
In times of crisis companies are often seen to be paying stable dividends. The question however is, should companies retain these dividends in the firm to protect employment and investments? Should companies preserve their financial flexibility in times of financial crises? Discuss the ethics of dividends and illustrate how dividends and related issues (e.g. dividend taxation) can play a part in rethinking the capitalist paradigm.
Based on M & M with taxes and without taxes, how much time should a financial manager spend analyzing the capital structure of their firm? The bird in hand theory suggests that a company can reduce its cost of equity capital by reducing its dividend payout ratio. Is this so and why? the homemade dividend strategy argues that investors impose their dividend preference on the firm. is this true or false and why
We can imagine the financial manager doing several things on behalf of the firm's stockholders. For example, the manager might: Make shareholders as wealthy as possible by investing in real assets. Modify the firm's investment plan to help shareholders achieve a particular time pattern of consumption. Choose high- or low-risk assets to match shareholders' risk preferences. Help balance shareholders' checkbooks. But in well-functioning capital markets, shareholders will vote for only one of these goals. Which one? Why?
a)- Do manager of a firm care more about their EPS than retained earnings? Explain why, just start your explanation with because.... b) Do vendors of a firm care more about cash flow than EPS? Explain why, just start your explanation with because.... c) Do investors care more about EPS than stock price? Explain why d) Do banks (or creditors who loaned money to a firm) care more about the firm's working capital or the firm's dividends? Which one and why? e. Which of the following will raise a firm's stock price: stock repurchases or a new stock issue? Briefly explain why? Start your explanation with because...
To what extent does the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate claims.
Which one of the following actions by a financial manager creates an agency problem? Lowering selling prices that will result in increased firm value Agreeing to expand the company at the expense of stockholders' value Borrowing money when doing so creates value for the firm Agreeing to pay management bonuses based on the market value of the firm's stock
Investors invest in a firm because they are motivated by the potential return on their investment. In evaluating a firm's potential for delivering that rate of return, what do they most look for in a firm's projections? The firm's ability to pay dividends The firm's plans to stock up on inventory in order to never run out of stock The firm's plans to extend credit terms to customers in order to gain more sales The firm's ability to generate cash by liquidating its marketable securities portfolio
You are concerned about one of the assets in your diversified portfolio. You just have an uneasy feeling about the CFO of that particular firm. You do believe however that the firm makes a good product and that it is appropriately priced by the market. Should you be concerned about the effect on your portfolio if the CFO embezzles a portion of the firm's cash? Discuss based on diversification of assets in a portfolio. Further assume your friend is trying to decide to purchase stock from that same company. She does not hold a diversified portfolio like you do. Based on the relationship between risk and return, will you be willing to pay a higher price for the stock than her? Explain
Which of the following is NOT a conclusion drawn from M&M's Propositions 1 and 2? a. Shareholder's required return rises with leverage. b. The WACC does not change as capital structure change. c. Firm value is determined by the left hand of the balance sheet the firm's assets, and the cash flow generated by them. d. The WACC is determined by the riskiness of the company's business (assets). e. A firm can change its market value by splitting its cash flows into different streams.
When a firm is deciding how much cash to distribute to stockholders, it should consider two things: (1) The overriding objective is to maximize shareholder value and (2) the firm's cash flows belong to shareholders, so income shouldn't be retained unless management can reinvest those earnings at higher rates of return than shareholders can earn themselves. The (capital budegeting, capital structure, and residual dividend)? model sets the dividend paid equal to net income minus the amount of retained earnings necessary to finance the firm's optimal capital budget. It can be expressed in equation format as: Dividends = Net income - [(Target equity ratio)(Total capital budget)] Because investment opportunities and earnings will vary from year to year, strict adherence to this model would result in fluctuating, unstable dividends. However, investors prefer stable, dependable dividends. Consequently, firms should use this model to help set their long-run target payout ratios, but not as a…
Based upon the empirical evidence, state whether the following statements are true or false, and briefly explain why. a). Firms are reluctant to change dividends. b). Stock prices generally go up on the ex-dividend date by less than the amount of the dividend in classic tax system. c). Increasing dividend payments to stockholders generally makes bondholders in the firm better off. d). Dividends create a tax disadvantage for investors even when tax rates on dividends and capital gain is the same.